Delhi-NCR leads Indian cities in rental growth amid Asia-Pacific slowdown: Knight Frank

While the Asia-Pacific (APAC) region saw a year-over-year (YoY) rental growth of 2.4 percent in H1 2024--down from a 6.2 percent increase in H1 2023--Indian cities, particularly Delhi-NCR, Mumbai, and Bengaluru, showed stable performance with a positive rental outlook for the next six months, according to the latest report from Knight Frank, titled Asia-Pacific Logistics Highlight H1 2024.

Delhi-NCR recorded the highest rental growth among Indian cities at 3.0 percent YoY, surpassing the regional average of 2.4 percent. This places Delhi-NCR 8th in the APAC logistics market based on annual rental growth. The city's logistics rents now stand at Rs 20.80 per square foot per month, with a vacancy level of 15.7 percent. Despite elevated vacancy levels, sustained demand for warehousing and logistics spaces is expected to maintain rent levels for the remainder of 2024.

Mumbai and Bengaluru both recorded a YoY rental growth of 2.3 percent, placing them at 11th and 12th in the APAC logistics market, respectively. Mumbai's logistics rents now stand at Rs 23.60 per square foot per month, with a vacancy rate that dropped to 9.4 percent from 10.3 percent in the previous year. Bengaluru, on the other hand, experienced a drop in ranking, with rents at Rs 22.00 per square foot per month and a vacancy level of 21.1 percent.

The report highlights that despite challenging conditions in key markets like Mainland China--where business activity decline led to drops in rents and rising vacancy rates--Indian markets have remained stable. Shishir Baijal, Chairman and Managing Director of Knight Frank India, emphasized the importance of the manufacturing sector in driving demand within the Indian logistics market. He said, "The government's focus on the manufacturing sector is proving successful, resulting in healthy demand from this sector.

Along with the traditional anchor role of 3PL players, this has strengthened the overall market volume"Strong private equity inflows into the warehousing market are expected to continue benefiting the logistics environment by ensuring the availability of high-quality facilities and the adoption of the latest processes in the Indian warehousing landscape.

The robust business environment, diversified warehousing demand, and growing institutional interest are likely to help the market regain its momentum in the near to medium term", Baijal added. India's warehousing market saw robust activity in H1 2024, with transactions across eight primary markets reaching 23 million square feet. Notably, 55 percent of these transactions occurred in Grade A spaces.

Mumbai led the market, accounting for 20 percent of the total warehousing volume, driven primarily by the 3PL sector. NCR followed, representing 17 percent of the total area transacted, with significant contributions from the manufacturing and 3PL sectors. For the first time, transaction volumes by manufacturing sector companies, including those in automotive, energy, and chemicals, surpassed those of the 3PL sector.

This shift highlights the growing importance of manufacturing in India's logistics landscape, traditionally dominated by the 3PL sector. Christine Li, Head of Research for Asia-Pacific at Knight Frank, noted that while the logistics occupier markets in Mainland China face significant challenges, the long-term fundamentals supporting the APAC region's logistics space market remain strong. Li said, "Despite moderating demand, the long-term fundamentals supporting the region's logistics space market remain intact.

As supply chains shift, manufacturing is emerging to be an important sector driving logistics development, along with e-commerce and 3PL players. While there will be ample flight-to-quality options in Beijing and Shanghai, these markets will remain under pressure until adsorption capacity picks."